Q4FY23 Review: Navin Fluorine Intl: Q4 an aberration; H1FY24 to see moderation

15 May 2023 , 02:16 AM

Q4FY23 was an exceptionally strong quarter for NFIL, driven by execution of bunched-up orders in CDMO (including US$16mn order received in Q2). However, we anticipate some challenges in H1FY24 earnings, led by longer-than-expected HPP plant shutdown, pressure on agrochemical intermediate and seasonally low CDMO performance in H1FY24.

Q4 earnings positively skewed: 

NFIL’s earnings continue to scale up, on the back of ramp-up of HPP unit and incremental contribution from MPP and agrochemical-dedicated plant. Besides, share of CDMO revenues inched up significantly in Q4, driving to overall beat. Specialty Chemicals revenues missed IIFLe by 12%, given volume decline within an agrochemical intermediate.

FY24 earnings to be back-ended: 

Analysts of IIFL Capital Services anticipate some challenges in H1FY24 earnings, led by lower HPP volumes, pressure on agrochemical intermediate within specialty chemicals and seasonally low CDMO performance in H1FY24. To their surprise, HPP plant shutdown of 3 weeks after operations of merely 8-9 months, looks optically very early and elongated. NFIL’s one agrochemical intermediate within specialty chemicals unit is witnessing demand pressure.

Maintain cautious view on stock: 

Going forward, analysts of IIFL Capital Services have pegged revenue/Ebitda growth forecasts of 23%/25% over FY23-26. While the underlying projects are progressing in a timely manner, global challenges may dampen performance of base business. Management will seek Board approvals for cGMP-4 and a specialty chemical project. At ~37x/32x FY24/25 P/E, valuations are very rich and factor in traction in earnings from upcoming growth projects, thereby leaving no room for disappointments.

Analysts of IIFL Capital Services trim FY24-25 EPS by 1-4%, to factor annual shutdown of HPP unit, weakness in agrochemical intermediate within specialty chemicals (excluding MPP and dedicated plant) and higher finance costs. TP, rolled over to Jun’24, revised to Rs3,980 (30x Jun-25 P/E) from Rs3,960. Maintain REDUCE.